Q2 2022 Marchex Inc Earnings Call
AI Breakthrough Awards program.
This program recognizes standout AI and machine learning solutions.
These acknowledgments and recognition continue to reinforce our path forward.
We see firsthand how we empower businesses with strategic insights that can increase brand effectiveness and drive sales growth. This inspires us to keep pushing and innovating.
I'm proud of our team's effort to build a company that helps businesses create better sales processes and customer experiences.
And with that, let me hand the call to Russ.
Thank you, Mike.
Today, we see significant long-term opportunity in MarTech's ability to disrupt the siloed sales and marketing funnels for enterprises to create better buying and also customer service experiences.
Over the past two years, we methodically focused on building a suite of software products that has fundamentally altered the way businesses can reach and interact with consumers. And as Mike mentioned, transformed marketing, sales, and customer engagement.
We have seen the impacts in our customers' businesses, and it's what motivates us to keep building the product capabilities needed.
While we're pleased with the progress we're making in our overall market opportunity, as a management team, we're mindful of the changing economic dynamics of the world in certain industries.
We've been through economic cycles before and manage our business prudently for many years.
Today, our business is diversified and has a strong balance sheet with a financial profile that enables us to invest aggressively as a market leader in conversational intelligence.
Our base of large enterprise customers, including some of the largest Fortune 500 brands, are leaning into Martex to solve their critical business challenges.
MarTech solutions can be both cost-cutting and revenue growth drivers for enterprises as they seek to leverage the benefits of our conversational intelligence products.
Based on our expanding customer relationships and points of impact and opportunity, we believe MarTech is well positioned for the future in a variety of scenarios.
We feel good about how Marchex is situated to take advantage of this market, and we can continue pursuing this while also maintaining our financial discipline. And with that, I will hand the call back to Mike.
Thank you, Russ.
Our second quarter of 2022 results saw modest growth from the first quarter of 2022.
This was a slight decline from the second quarter of 2021, as overall, there continues to be influence from macroeconomic factors caused by pandemic and global events, which are suppressing overall conversation volumes.
More specifically, on a year-over-year basis, our volumes in several verticals continue to be impacted by pandemic and geopolitical-related shifts, which are suppressing inventory levels, causing continued supply chain disruptions, disruptions limiting parts availability, and creating inflationary pricing pressures.
As we have previously communicated, these factors may take time to unwind even as we grow, add new customers, and scale a number of our existing relationships in some of our largest verticals.
On a sequential basis, we did see some modest increases, largely due to the expansion of relationships with some of our largest Fortune 500 customers.
And we did see some progress in adding new customer relationships across multiple verticals.
We believe that over the remainder of this year, we will continue to make progress through our momentum and sales winds with new customers in verticals such as healthcare, home services, and an ongoing relationship expansion with several big customers.
Looking more closely at the second quarter of 2022, as the quarter progressed, we saw a modest uptick from January 2022 levels. But due to the factors outlined, we did not see the robust conversation volume growth that we saw last year during the second quarter, when the economy rapidly expanded coming out of the first pandemic wave.
However, looking at the more favorable takeaways from the corridor, we continued to see consistent traction with new products sell through to new and existing customers.
Our long-term customer and prospect pipeline is growing, and we believe it has an opportunity to drive a more meaningful growth profile.
And furthermore, to the extent that we get an unwinding of the supply chain disruption, particularly in verticals like auto, we believe the conversational volume headwinds that have been present in our business.
can shift to a tailwind and contribute to growth, potentially meaningfully so, as we expand the footprint of customers in those verticals.
While that may take some time in certain verticals, we expect we will have a larger base of customers to leverage in a normalized environment as volumes return and that will have a very positive impact on our growth trajectory.
On the operating cost side, our continued progress on technology infrastructure initiatives enabled us to achieve
Positive Adjusted EBITDA, which positions us well in the future for discretionary operational leverage with growth acceleration.
For today's commentary, I will focus on our financial results from continuing operations.
And on that basis, revenue for the second quarter of 2022 was $13.5 million.
versus $14 million for the same quarter last year, when we saw an uptick in overall economic and consumer activity coming out of the first pandemic wave.
We did see some modest growth from the first quarter of 2022, due largely to the expansion of some of our largest customer relationships as previously mentioned.
As noted earlier, we continue to see our sales channel expand.
with several new opportunities emerging with some of our largest customers.
and the onboarding of a few significant new relationships.
We believe as we continue to expand our product pipeline and channel opportunities over the course of this year, this should favourably impact our opportunities with current customers as well as open new customer opportunities.
Now let's shift to the P now for the second quarter.
excluding stock-based compensation, amortization of intangible assets, and acquisition of disposition-related costs.
Total operating costs from continuing operations for the second quarter were $13.7 million compared to $14.8 million in the second quarter of 2021.
Service costs were $4.8 million for the second quarter.
Service Costs showed some leverage year over year largely due to our progress with our technology infrastructure initiatives.
Over time, as we continue to see successful sell-through from a launch of our new conversational intelligence products and channel initiatives, we believe we will see a positive impact on service costs as a percentage of revenue. we will see a positive impact on service cost as a percentage of revenue.
Sales and marketing costs were approximately $3.4 million.
This increased from the year-ago period due to additional investment in personnel costs compared to the year-ago period.
Product development costs were $3.5 million and were down as a percentage of revenue compared with the second quarter of 2021, reflective in part of continued efficiencies gained from our cloud-based initiatives and our technology platform progress.
Moving to profitability measures, adjusted operating loss before organization for the second quarter was $240,000.
Corresponding adjusted EBITDA was a positive $167,000, improving modestly from the first quarter of 2021.
Gap net loss was $1.5 million for the second quarter of 2022, or 3 cents per diluted share. This compares to a net loss of $300,000, or 1 cent per diluted share for the second quarter of 2021.
Adjusted non-GAAP loss was one cent per share for the quarter compared to an adjusted non-GAAP loss of two cents per share for the second quarter of 2020.
Additionally, we ended the second quarter with approximately $25 million in cash on hand, the most uptick from the first quarter.
Now turning to our outlook.
For the third quarter of 2022, we have seen conversation volumes remain relatively stable with the June period. As stated, inventory remains down on a year-over-year basis in some of our largest verticals, and we expect it may take some time to recover.
Additionally, macro events like supply chain disruptions and inflationary pressures continue to impact some of our large verticals.
Despite this, we anticipate that sales traction will lead to similar revenue levels in the third quarter as compared to the most recent quarters.
And additionally, based on our current momentum, we believe we will be at or near adjusted EBITDA breakeven for the third quarter.
And with that said, as we move through the rest of 2022 and into 2023, we believe there are positive fundamental long-term trends in our business. We believe there are positive fundamental long-term trends in our business.
We continue to have strong engagement with a number of our Fortune 500 customers about expanding our relationships meaningfully over time.
In addition, we are seeing potential opportunities with some of these relationships to expand into growing multi-year frameworks.
We are also making progress winning new business as our new products suite continues to resonate with customers looking to leverage conversational intelligence to create better customer experiences and to grow their business.
This is further reinforced by our ongoing efforts to leverage our cloud-based architecture and large proprietary dataset to open new opportunities to explore channel partnerships in order to reach thousands of additional businesses over time.
These factors are why we remain fundamentally optimistic about our future.
The trend toward businesses taking advantage of conversational intelligence to create better customer experiences and drive increased sales is meaningful and expanding.
We are being recognized for innovation and believe we are well positioned to take advantage of this trend.
We continue to solve mission-critical problems for Fortune 500 and world-class brands.
And furthermore, we fundamentally believe that some of the economic headwinds created by the pandemic over the last two years at some point will abate.
Factors like inventory disruptions will begin to ebb and recover from current levels, and we believe that can be an incremental driver of growth for March X.
I want to thank again all of our employees for their dedication and continued efforts.
And with that, operator, we will hand the call back to you.
We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. And for any reason at all, you would like to remove that question.
Please press star followed by two. Again, to ask a question press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We'll pause here briefly as questions are registered.
The first question comes from the line of Mike Lattimore with Northland Securities. Your line is open.
Hey, this is Logan Hennen speaking for Michael Attermore. And then we got three questions for you guys on this call today. First one is, how has the auto sector begun to improve from Lowe's-related supply chain near the end of Q2 at the end of Q3?
Thanks, Logan. It's for us. Yeah, on the auto front, I...
What we've seen is these inventory issues or lack of available inventory has impacted conversation volumes. The inventory is just not there to fully support the consumer demand. That has been a factor. We talked about it as part of the broader macroeconomic headwinds. And auto for us is our biggest vertical when you've got auto OEMs and auto services. Where we're really optimistic is kind of beyond the moment.
We've continued to see a successful expansion of relationships with our existing customers. And we've also continued to add new ones, both on the OEM side and on the dealer side, and get deeper adoption of a variety of our products. And so that's been a positive trend. But the inventory issues are suppressing conversation volumes. But when we look at the customer product progress, beyond your question relative to Q2 and Q3, we do think these are good pulse metrics of ultimately
what's possible when things normalize. So we think we've done a lot of the work that sets the stage for us to see growth and opportunity when the environment normalizes and some of these supply chain issues start to thaw.
Perfect. And then should growth margins, should we expect them to be stable for the rest of the year.
This is Mike. This is Mike.
At this point, yes, we think that our service costs or cost of sales from that perspective has been improved in the last year and the last two years in large part because of our technology infrastructure efforts. And we see that condition or the benefit that we've been able to obtain from that here in the very recent months continuing throughout the rest of the calendar 2022 year. Additionally, if we see.
room for opportunity for growth, particularly if we look out in 2023 and beyond. The way our technology infrastructure has been set up now with cloud-based environment, we should actually look forward to some operating leverage and some margin expansion in that arena. Thank you very, very much for your time.
Okay, perfect. Thank you. And then, what is the head count at currently and where do you guys expect that might go towards the end of the year by year end?
Thanks, Logan. It's been fairly consistent with how we've been operating over the course of the last year and a little bit or so. It's a little over 200 FTEs, full-time equivalents. We do use some team members in some jurisdictions from a contracting perspective here across the US and Canada. And those team members from an FTE perspective would round you up to a little north of 250 total.
Okay, thank you. That's all the questions we have.
Thank you. The next question comes from Darren with ROV Capital Partners. Please proceed.
This is Austin on for Darren. Thanks for taking my questions. I just have a few for you.
First, I mean, you guys already touched on kind of the auto industry, and it sounds like that may be a bit of a laggard, at least for a couple more quarters until we can start seeing some inventory up screen. But aside from that, I'm more curious on what level of resiliency you kind of see, given the economic backdrop with – Hey, guys!
some of the other verticals you operate in, like healthcare and home services and so forth.
Thanks, Austin. It's Russ. I mean, you really hit on our core largest verticals. Obviously, we've got a variety of verticals that we see as significant opportunities. But if you hit on auto, home services, and health care, those are clearly three of them. And you do see some supply chain challenges also in home services, just given the nature of the seasonality and what's going on.
But when you look beyond the moments and you look at our customer footprint, similar to auto and expansion opportunities, we do view it as a catalyst for growth acceleration going forward. Healthcare, we've had some key relationships where we've also seen some expansion. So similar thing to what I said before talking about our observations on auto, we feel like we've done the work to develop the right products to solve kind of key pain points for customers. We feel like they've recognized that and they've been leaning in to adopt those.
And really the key element behind that is, do they have the inventory and availability capacity to support the consumer demand? And so as that improves, we think we're well positioned to see that last step, be growth and closer.
Got it. I appreciate that. Thank you.
Second question, you guys have done a very good job implementing some of these cost controls. I'm just curious how that kind of plays into launching new products and whether there are any major expenditures associated with launching these new products that could deviate away from kind of expected OpEx levels.
Thanks, Austin. This is Mike.
invested significantly over the course of the last two and a half years, even during the COVID environment, in development research initiatives. And a lot of this is stemmed off of...
some of the customer framework, where giving feedback from the customers and routing that into our product roadmap has translated into a variety of new initiatives that has led to some of the things that we've been fortunate to win some of the awards for here more recently.
Those innovations are not done, they're continuing and I think anytime you're in the development arena obviously you're ripe for the potential for upset. But just the program that we've developed, the technology infrastructure and the move to the cloud-based systems.
We do feel that there's tangibility to some of the initiatives, especially in the roadmap over the next 12 to 18 months, and that we can manage through that productively to actually produce results in the product and update it in the way that we see fit with those innovations and bring to market the things in a reasonably credible, fiscally responsible manner, as part of at least what we see in the near and the intermediate term.
Long term obviously development is always a risky endeavor and that's part of the prowess of the opportunity but certainly in the near and the intermediate term we feel pretty good about just the discipline we have with the product roadmap that's out there and what we have slated from a financial perspective in terms of the outlay for that.
Got it. I appreciate that. And then, just the last one for me. I'm just curious. Are there PS5 mini movies dominant world series commentary on016 VR?
Aside from the major verticals of healthcare, home services, autos, are there any other verticals you guys are tapping into that you're starting to see traction with that could be pretty notable moving forward?
Yeah
Real estate is a vertical that continues to be important for us. There's a variety, this is kind of beyond the vertical, but texting continues to be a catalyst to cross a number of verticals when you look at the combination of voice and text.
So, yeah, those are just a couple of tidbits.
healthcare I mentioned, beyond kind of auto and...
and home services and even within auto, we talk a lot about the OEMs.
But auto services, we think, is a significant opportunity in its own right.
Got it. Great. Well, I appreciate that. Thanks for taking my questions and congrats again on the quarter.
Thank you.
Thank you.
There are no further questions in the queue, so we'll pass it back to the management team for closing remarks.
Great. This is Rod. Thank you everyone. Just to give you some.
Just to share some closing thoughts. To put emphasis, the trend toward conversational intelligence, it's real, it's meaningful, and it's a recurring theme among our largest customers. Businesses want to use technology to improve the consumer path of purchase, and this will be a major theme when we look out over the next several years. We think we've really got.
the proof points around that. MarTech is well positioned by virtue of the investment we made in the strategic aspects of our business. We've hit on a lot of those details today, and those are recurring themes. From our new cloud-based technology platform to expanding the product suite to help businesses leverage conversational intelligence software to really drive growth and also for the opportunity to save as well. Given the customer progress we've made with both relationship expansion and adding new customers, you know we have time to keep thatju.
We believe markets can be successful as we look to the future, regardless of economic outlook. Our products continue to be recognized as best in class, and we really believe that with normalization and any of our key verticals like auto, this can be a further catalyst for growth acceleration in our business. And obviously, we look forward to when this happens as well. So we really want to thank you all for participating in the call and continuing to be involved with us, and look forward to updating you as we go forward as well.
Thank you. Thank you, everyone. This concludes the March X second quarter earnings conference call. Thank you for your participation. You may now disconnect your line.